Didn’t See That One Coming!

“He rented all that farmland and now he’s got problems.” “You should see that new combine he bought and now he can’t make payments on it.” “Well, guess who’s going to have a farm sale?”

There is not much empathy in the country when a neighboring farmer has financial difficulty. Many farmers are having that difficulty, but when it becomes public knowledge the cacophony intensifies.

But the general public, which puts all farmers in the same basket, assumes all of agriculture is having problems paying bills and repaying loans. Many are, but many aren’t. It just depends on some management skills, and in many cases a little bit of luck. However, the difficulties facing all farmers, which have cut farm income in half over the past 3 years, cannot be blamed on them.

One of those significant issues is in South America, and a more recent one is in China.

The first issue is Argentine politics, and certainly nothing that a farmer on Rural Route 4 could do anything about. Argentina threw out its old government, which is now under indictment for money laundering, and installed a government promising popular economic reforms. One of those was to eliminate taxes on grain exports, and farmers have flooded grain terminals at export points with grain from several years of production.

The impact has been to increase the supply of corn and soybeans into global trade routes and keep downward pressure on grain prices. Although the reform candidates had touted that policy, their chance of being elected was given little credence. And upon installation of the new president in December, grain export terminals were doing so-called “land office business.” When foreign grain buyers saw a bargain they headed for Argentina and hundreds of ships are in line to take advantage of the bargain-basement grain prices.

China’s announcement last week was also a surprise. Typically, a communist government does not admit any mistakes, and certainly does not change any policy toward capitalism. But China did both in regards to how it handles corn.

For the past 9 years, Chinese farmers have been paid upwards of $10 per bushel for corn, to ensure the country was self sufficient. After all it is the global leader in pork and poultry production and needs livestock feed. But the supply overshadowed the demand and an estimated 8 billion bushels of corn were in storage, some of it for those 9 years, and much of it in the open air.

While the quality is expectedly low, it was tabulated by global grain accountants as part of available supplies and has pressured the global corn market. But the government said the price of corn was being cut to $7.50 this year and to near $6 next year in an effort to reduce production so the supply would come more into balance with the demand. And what’s more, as much as 1.5 million bushels may be made available to export, with no corn imports in the foreseeable future.

That was another weight atop the corn market, with more pressure added when Chinese authorities said farmers were welcome to begin raising soybeans. Last year, China bought 3 billion bushels of soybeans from global suppliers, such as the US. And before its corn imports were halted 2 years ago, China bought a quarter billion bushels of US corn.

Neither the Chinese corn policy change, nor the Argentine tax policy change could have been anticipated by the typical Cornbelt farmer. He or she would not have known how either would impact the grain market, just two of numerous examples of issues that have bled away half of the US net farm income.